BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       SB 1456|
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                                UNFINISHED BUSINESS 


          Bill No:  SB 1456
          Author:   Galgiani (D) 
          Amended:  8/18/16  
          Vote:     21 

           SENATE ENVIRONMENTAL QUALITY COMMITTEE:  7-0, 4/20/16
           AYES:  Wieckowski, Gaines, Bates, Hill, Jackson, Leno, Pavley

           SENATE APPROPRIATIONS COMMITTEE:  7-0, 5/27/16
           AYES:  Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen

           SENATE FLOOR:  38-0, 5/31/16
           AYES:  Allen, Anderson, Bates, Beall, Berryhill, Block,  
            Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,  
            Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,  
            Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,  
            Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,  
            Vidak, Wolk
           NO VOTE RECORDED:  Runner, Wieckowski

           ASSEMBLY FLOOR:  80-0, 8/23/16 - See last page for vote

           SUBJECT:   Safe Drinking Water State Revolving Fund Law of  
                     1997:  water systems:  financing


          SOURCE:    California Water Association
          
          DIGEST:   This bill allows costs incurred by a community water  
          system or not-for-profit noncommunity water system for planning  
          and preliminary engineering studies, project design, and  
          construction to be funded under the Safe Drinking Water State  
          Revolving Fund (SDWSRF).  










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          Assembly Amendments authorize a grant or principal forgiveness  
          to a community water system or not-for-profit noncommunity water  
          system that serves a disadvantaged community and limits the  
          principal forgiveness to capital improvements made by the water  
          system serving disadvantaged communities with fewer than 3,300  
          service connections.


          ANALYSIS: 


          Existing law:  


          1)Requires, under the California Safe Drinking Water Act (SDWA),  
            the State Water Resources Control Board (SWRCB) to regulate  
            drinking water and enforce the federal Safe Drinking Water Act  
            and other regulations.


         2)Establishes SDWSRF, and moneys in the fund are continuously  
            appropriated to SWRCB for the provision of grants and  
            revolving fund loans to provide for the design and  
            construction of projects for public water systems that will  
            enable suppliers to meet safe drinking water standards.


            a)   For community public water systems and not-for-profit  
               noncommunity public water systems, allows planning and  
               preliminary engineering studies, project design, and  
               construction costs incurred by those public water systems  
               to be funded by loans and other repayable financing. 


            b)   Additionally allows, if those public water systems are  
               owned by public agencies or not-for-profit water companies,  
               those specified costs to be funded by grants, principal  
               forgiveness, or a combination of grants and loans or other  
               financial assistance.


            c)   Deems a public agency or private not-for-profit water  








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               company serving a severely disadvantaged community with  
               fewer than 200 service connections and that owns a small  
               community water system or nontransient community water  
               system to have no ability to repay any financing for a  
               project serving the severely disadvantaged community.


         3)Requires the California Public Utilities Commission (CPUC) to  
            establish rates for investor-owned utilities water service  
            providers.


          This bill:  


          1)Authorizes the above-described capital and design costs to be  
            funded by loans or other repayable financing, grants,  
            principal forgiveness, or a combination of grants and loans or  
            other financial assistance, regardless of whether the water  
            system is a community public water system, a not-for-profit  
            noncommunity public water system, or is owned by a public  
            agency or private not-for-profit investor-owned utility water  
            service provider.  By expanding the use of moneys in a  
            continuously appropriated fund, this bill will make an  
            appropriation.


          2)Specifies that any public water system serving a severely  
            disadvantaged community with fewer than 3,300 service  
            connections does not have the ability to repay any financing  
            for a project serving the severely disadvantaged community.


          Background


          1)SDWSRF. Congress established the SDWSRF as part of the 1996  
            Safe Drinking Water Act amendments to better enable public  
            water systems to comply with national primary drinking water  
            standards and to protect public health.  The SDWSRF provides  
            financial assistance in the form of capitalization grants to  
            states to provide low-interest loans and other assistance to  








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            public water systems.  


             In order to receive these funds, states must provide a state  
             match equal to 20% of the federal capitalization grants and  
             must create a drinking water state revolving fund program for  
             public water system infrastructure needs and other drinking  
             water-related activities.  In response, California  
             established the SDWSRF through SB 1307 (Costa, Chapter 734,  
             Statutes of 1997) to help fund the state's drinking water  
             needs.  


             SDWSRF provides low-interest preconstruction and construction  
             loans or grants to drinking water systems.  These loans or  
             grants cover capital improvements that increase public health  
             and compliance with drinking water regulations.


             Financial incentives including reduced interest rates,  
             extended financing terms, principal forgiveness and grants  
             targeted toward small disadvantaged communities with  
             financial hardship. 


             SWRCB division of drinking water evaluates financial hardship  
             and ability to repay based on affordability criteria  
             including population, median household income, and rates as a  
             percent of median household income.



          2)What are investor-owned water utilities?  Investor-owned water  
            companies are water service providers that own regulated water  
            and wastewater utilities, partner with municipalities to form  
            public-private partnerships, or operate and maintain water and  
            wastewater systems as contracted services providers.  These  
            companies may be privately owned or publicly traded.



             In California, these water service providers who own and  








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             operate utilities are regulated by CPUC.  CPUC establishes  
             rates and terms of service.  In setting rates, CPUC reviews  
             the company's costs, audits system needs, conducts public  
             hearings for customers, holds formal evidentiary hearings  
             adjudicated by administrative law judges, and issues a final  
             decision authorizing the utility to establish approved rates  
             and terms of service.  



             Rates are set to collect an authorized revenue requirement to  
             compensate for just and reasonable expenses for operating and  
             maintaining a water system and costs related to capital  
             expenditure, including an authorized rate of return on the  
             underappreciated capital investment (rate base), depreciation  
             expense, property and income taxes.



             There are 108 investor-owned water utilities under the CPUC's  
             jurisdiction providing water service to about 16% of  
             California's residents.  Approximately 95% of that total is  
             served by nine large water utilities each serving more than  
             10,000 connections.  Annual water and wastewater revenues  
             under the CPUC's regulation total $1.4 billion.  



             CPUC regulates 70 Class D water utilities that have less than  
             500 connections.  Of these 70, 55 have less than 200 service  
             connections.  There are also eight districts of Class A and B  
             multi-district utilities that have less than 200 connections.  
              CPUC's regulation of water utilities does not consider  
             whether or not the utility is serving severely disadvantaged  
             communities.  As such, CPUC does not maintain information to  
             know if any of the 55 Class D water utilities or the eight  
             districts of the Class A and B multi-district utilities serve  
             severely disadvantaged communities.



             The after-tax authorized rate of return on a utility's rate  








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             base is between 10.2% and 11.2% for Class D water utilities.


          Comments


          Need for the bill:  According to the author, water utilities  
          regulated by the CPUC are eligible for water-related state and  
          federal funding programs, like the Prop.1 Water Bond, as long as  
          the funding is used for projects to benefit their customers.   
          CPUC-regulated water utilities are eligible for loans from the  
          SDWSRF.  This program, under SWRCB, assists water systems in  
          financing the cost of drinking water infrastructure projects  
          needed to achieve or maintain compliance with SDWA requirements.  
           CPUC-regulated water utilities are not eligible for loan  
          forgiveness under this statute.  SB 1456 expands the eligibility  
          for loan forgiveness for capital improvements to all water  
          systems serving severely disadvantaged communities with fewer  
          than 200 service connections.


          FISCAL EFFECT:   Appropriation:     Yes        Fiscal  
          Com.:YesLocal:   No


          According to the Assembly Appropriations Committee:


          1)Unknown, potentially significant, cost pressures on the SDWSRF  
            resulting from eligibility for grants and loan forgiveness for  
            an increased number of water systems.


          2)Minor, absorbable SWRCB.




          SUPPORT:   (Unable to verify at time of writing)


          California Water Association (source)








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          OPPOSITION:   (Unable to verify at time of writing)


          None received

           ASSEMBLY FLOOR:  80-0, 8/23/16
           AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,  
            Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth  
            Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,  
            Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,  
            Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,  
            Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,  
            Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,  
            O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,  
            Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,  
            Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

           


          Prepared by:Rachel Machi Wagoner / E.Q. / (916) 651-4108
          8/23/16 20:26:30


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